Finwise Bancorp 10-Q

Item 1. Financial Statements FinWise Bancorp Consolidated Balance Sheets (Unaudited) (in thousands, except share and par value amounts) ​ September 30, December 31, 2022 2021 ASSETS Cash and cash equivalents Cash and due from banks $ 410 $ 411 Interest-bearing deposits 92,053 85,343 Total cash and cash equivalents 92,463 85,754 Investment securities held-to-maturity, at cost 13,925 11,423 Investment in Federal Home Loan Bank (FHLB) stock, at cost 449 378 Strategic Program loans held-for-sale, at lower of cost or fair value 43,606 60,748 Loans receivable, net 200,485 198,102 Premises and equipment, net 6,830 3,285 Accrued interest receivable 1,672 1,548 Deferred taxes, net 2,164 1,823 SBA servicing asset, net 5,269 3,938 Investment in Business Funding Group (BFG), at fair value 4,500 5,900 Investment in FinWise Investments, LLC 271 80 Operating lease right-of-use (“ROU”) assets 6,691 — Other assets 7,244 7,235 Total assets $ 385,569 $ 380,214 ​ LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Deposits Noninterest-bearing $ 97,654 $ 110,548 Interest-bearing 135,184 141,344 Total deposits 232,838 251,892 Accrued interest payable 30 48 Income taxes payable, net 1,066 233 PPP Liquidity Facility 345 1,050 Operating lease liabilities 7,249 — Other liabilities 9,756 11,549 Total liabilities 251,284 264,772 ​ Commitments and contingencies (Note 8) ​ Shareholders’ equity Preferred stock, $ 0.001 par value, 4,000,000 authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021 — — Common stock, $ 0.001 par value, 40,000,000 shares authorized; 12,864,821 and 12,772,010 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively 13 13 Additional paid-in-capital 55,113 54,836 Retained earnings 79,159 60,593 Total shareholders’ equity 134,285 115,442 Total liabilities and shareholders’ equity $ 385,569 $ 380,214 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents FinWise Bancorp Consolidated Statements of Income (Unaudited) (in thousands, except share and per share amounts) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Interest income Interest and fees on loans $ 12,481 $ 13,726 $ 38,501 $ 33,635 Interest on securities 52 7 135 19 Other interest income 290 16 423 36 Total interest income 12,823 13,749 39,059 33,690 Interest expense Interest on deposits 303 271 808 859 Interest on PPP Liquidity Facility 1 8 2 125 Total interest expense 304 279 810 984 Net interest income 12,519 13,470 38,249 32,706 Provision for loan losses 4,457 3,367 10,317 5,536 Net interest income after provision for loan losses 8,062 10,103 27,932 27,170 Non-interest income Strategic Program fees 5,136 4,982 17,980 11,877 Gain on sale of loans, net 1,923 2,876 9,387 7,876 SBA loan servicing fees 327 337 1,056 800 Change in fair value on investment in BFG 65 266 ( 908 ) 2,127 Other miscellaneous income 72 14 121 35 Total non-interest income 7,523 8,475 27,636 22,715 Non-interest expense Salaries and employee benefits 5,137 5,930 18,684 16,313 Professional services 1,701 253 3,845 762 Occupancy and equipment expenses 640 205 1,361 602 (Recovery) impairment of SBA servicing asset ( 127 ) — 949 — Other operating expenses 1,118 1,010 3,697 3,463 Total non-interest expense 8,469 7,398 28,536 21,140 Income before income tax expense 7,116 11,180 27,032 28,745 Provision for income taxes 3,462 2,738 8,462 7,273 Net income $ 3,654 $ 8,442 $ 18,570 $ 21,472 Earnings per share, basic $ 0.28 $ 0.97 $ 1.45 $ 2.47 Earnings per share, diluted $ 0.27 $ 0.91 $ 1.37 $ 2.36 Weighted average shares outstanding, basic 12,784,298 8,255,953 12,727,555 8,177,575 Weighted average shares outstanding, diluted 13,324,059 8,810,829 13,404,564 8,545,501 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents FinWise Bancorp Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (in thousands, except share amounts) Three Months Ended September 30, 2021 Common Stock ​ ​ Shares Amount Additional Paid-In Capital Retained Earnings Total Shareholders’ Equity Balance at June 30, 2021 8,716,110 $ 9 $ 18,274 $ 42,040 $ 60,323 Stock-based compensation expense — — 230 — 230 Stock options exercised 30,000 — 143 — 143 Net Income — — — 8,442 8,442 Balance at September 30 , 2021 8,746,110 $ 9 $ 18,647 $ 50,482 $ 69,138 Nine Months Ended September 30, 2021 Common Stock ​ ​ Shares Amount Additional Paid-In Capital Retained Earnings Total Shareholders’ Equity Balance at January 1, 2021 8,660,334 $ 9 $ 16,853 $ 29,010 $ 45,872 Stock-based compensation expense — — 1,485 — 1,485 Stock options exercised 85,776 — 309 — 309 Net Income — — — 21,472 21,472 Balance at September 30 , 2021 8,746,110 $ 9 $ 18,647 $ 50,482 $ 69,138 FinWise Bancorp Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (in thousands, except share amounts) Three Months Ended September 30, 2022 Common Stock ​ ​ Shares Amount Additional Paid-In Capital Retained Earnings Total Shareholders’ Equity Balance at June 30, 2022 12,884,821 $ 13 $ 55,015 $ 75,509 $ 130,537 Stock-based compensation expense — — 308 — 308 Common stock repurchased ( 20,000 ) — ( 210 ) ( 4 ) ( 214 ) Net Income — — — 3,654 3,654 Balance at September 30 , 2022 12,864,821 $ 13 $ 55,113 $ 79,159 $ 134,285 Nine Months Ended September 30, 2022 Common Stock ​ ​ Shares Amount Additional Paid-In Capital Retained Earnings Total Shareholders’ Equity Balance at January 1, 2022 12,772,010 $ 13 $ 54,836 $ 60,593 $ 115,442 Stock-based compensation expense 96,011 — 447 — 447 Common stock repurchased ( 20,000 ) — ( 210 ) ( 4 ) ( 214 ) Stock options exercised 16,800 — 40 — 40 Net Income — — — 18,570 18,570 Balance at September 30 , 2022 12,864,821 $ 13 $ 55,113 $ 79,159 $ 134,285 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents FinWise Bancorp Consolidated Statements of Cash Flows (Unaudited) (in thousands) For the Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 18,570 $ 21,472 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 1,345 750 Provision for loan losses 10,317 5,536 Amortization of operating lease ROU asset 689 — Net amortization in securities discounts and premiums 26 19 Capitalized servicing assets ( 3,164 ) ( 2,474 ) Gain on sale of SBA loans, net ( 9,387 ) ( 7,876 ) Originations of Strategic Program loans held-for-sale ( 5,863,965 ) ( 4,064,999 ) Proceeds on Strategic Program loans held-for-sale 5,881,107 4,023,245 Change in fair value of BFG 908 ( 2,127 ) Impairment of SBA servicing asset 949 — Stock-based compensation expense 447 1,485 Deferred income tax benefit ( 341 ) ( 1,145 ) Net changes in: Accrued interest receivable ( 124 ) 332 Accrued interest payable ( 18 ) ( 152 ) Other assets ( 9 ) ( 3,416 ) Operating lease liabilities ( 131 ) — Other liabilities ( 960 ) 7,875 Net cash provided by (used in) operating activities 36,259 ( 21,475 ) Cash flows from investing activities: Net decrease in loans receivable 6,916 61,665 Purchase of loan pools ( 10,267 ) ( 6,000 ) Investments in FinWise Investments, LLC ( 191 ) — Distributions from BFG 492 656 Purchase of bank premises and equipment ( 3,968 ) ( 1,448 ) Proceeds from maturities and paydowns of securities held-to-maturity 1,413 381 Purchases of securities held to maturity ( 3,941 ) ( 3,005 ) Purchase of FHLB stock ( 71 ) ( 172 ) Net cash (used in) provided by investing activities ( 9,617 ) 52,077 Cash flows from financing activities: Net increase (decrease) in deposits ( 19,054 ) 88,560 Common stock repurchased ( 214 ) — Proceeds from exercise of stock options 40 309 Proceeds from PPP Liquidity Facility — 5,558 Repayment of PPP Liquidity Facility ( 705 ) ( 104,306 ) Net cash used in financing activities ( 19,933 ) ( 9,879 ) Net change in cash and cash equivalents 6,709 20,723 Cash and cash equivalents, beginning of the period 85,754 47,383 Cash and cash equivalents, end of the period $ 92,463 $ 68,106 Supplemental disclosures of cash flow information: Cash paid during the period Income taxes $ 7,957 $ 6,240 Interest $ 828 $ 1,136 Supplemental disclosures of noncash operating activities: Right-of-use assets obtained in exchange for operating lease liabilities (ASC 842 adoption effective January 1, 2022) $ 7,380 $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents Note 1 – Summary of Significant Accounting Policies Nature of business and organization – FinWise Bancorp is a Utah Corporation headquartered in Murray, Utah and operates all business activities through its wholly-owned banking subsidiary, FinWise Bank, f/k/a Utah Community Bank. FinWise Bank was incorporated in the state of Utah on May 7, 1999. FinWise Bancorp, f/k/a All West Bancorp, was incorporated in the state of Utah on October 22, 2002, after which, it acquired 100 % of FinWise Bank. As of March 4, 2016, FinWise Bank’s articles of incorporation were amended to rename the entity FinWise Bank. As of March 15, 2021, FinWise Bancorp’s articles of incorporation were amended and restated to rename the entity FinWise Bancorp. References herein to “FinWise Bancorp,” “Bancorp” or the “holding company,” refer to FinWise Bancorp on a standalone basis. The word “Company” refers to FinWise Bancorp and FinWise Bank collectively and on a consolidated basis. References to the “Bank” refer to FinWise Bank on a standalone basis. On July 15, 2021, the Company publicly filed a Registration Statement on Form S-1 with the SEC in connection with its Initial Public Offering (“IPO”) (the “Registration Statement”), which was subsequently amended on July 30, 2021, August 4, 2021, November 1, 2021, and November 16, 2021. The Registration Statement was declared effective by the SEC on November 18, 2021. In connection with the IPO, the Company issued 4,025,000 shares of common stock, par value of $ 0.001 , which included 525,000 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares. The securities were sold to the public at a price of $ 10.50 per share and began trading on the Nasdaq Stock Market LLC on November 19, 2021. On November 23, 2021, the closing date of the IPO, the Company received total net proceeds of $ 39.3 million. The net proceeds less other related expenses, including audit fees, legal fees, listing fees, and other expenses, totaled $ 35.6 million. The Bank provides a full range of banking services to individual and commercial customers. The Bank’s primary source of revenue is from loans including consumer, Small Business Administration (SBA), commercial, commercial real estate, and residential real estate. The Bank also has established Strategic Programs with various third-party loan origination platforms that use technology to streamline the origination of unsecured consumer and secured or unsecured business loans to borrowers within certain approved credit profiles. The Bank earns monthly program fees based on the volume of loans originated in these Strategic Programs, as well as interest during the time the Bank holds the loans. The Company is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those agencies. 9 Table of Contents COVID-19 – On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic. Local and national governments and regulatory authorities have systematically implemented remedial measures to try to slow and curb the spread of COVID-19, including business closures and operating restrictions, travel bans, shelter in place, stay home, and similar directives and orders. In response to the COVID-19 pandemic and in adherence with state and local guidelines, the Company has implemented the business continuity plan and other measures and activities to protect the Company’s employees and, at the same time, to assist the Company’s clients and the communities of which the Company is a part, including enabling remote working capability for the majority of the Company’s employees, increased mobile banking and electronic transaction options for clients, payment deferral assistance to commercial and consumer borrowers, and participation in the SBA’s Paycheck Protection Program (“PPP”) for loans to qualifying small businesses. On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”. This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance goes on to explain that in consultation with the Financial Accounting Standards Board (“FASB”) staff that the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not troubled debt restructurings (“TDRs”). The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on March 27, 2020. The CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. The Bank has applied this guidance related to payment deferrals and other COVID-19 related loan modifications. The CARES Act also included a total allocation of $659 billion for loans to be issued by financial institutions through the Small Business Administration (“SBA”). This program is known as the Paycheck Protection Program (“PPP”). PPP loans are forgivable, in whole or in part, if the proceeds are used for eligible payroll costs and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00%. PPP loans originated prior to June 5, 2020 have a term of two years, while PPP loans originated on or after June 5, 2020 have a term of five years. Payments are deferred for at least the first six months of the loan and the loans are 100 % guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1 % to 5 %, based on the size of the loan. At September 30, 2022, net deferred loan fees related to PPP loans was a de minimis amount, which will be recognized over the life of the loans. As of December 31, 2021, PPP borrowers had applied for and received forgiveness from the SBA for $ 125.2 million of PPP loan principal and had made $ 0.3 million of principal payments leaving $ 1.1 million of PPP loan principal outstanding as of December 31, 2021. During the nine months ended September 30, 2022, PPP borrowers made $ 0.4 million of principal payments leaving $ 0.7 million of PPP loan principal outstanding as of September 30, 2022. The loan forgiveness resulted in the recognition of a de minimis amount of deferred loan fees for the nine months ended September 30, 2022. Basis of Presentation – The consolidated financial statements are comprised of the accounts of FinWise Bancorp and its wholly-owned subsidiaries, FinWise Investments, LLC and FinWise Bank (collectively, the “Company”). All significant inter-company transactions have been eliminated in consolidation. In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results. Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC for the presentation of the Form 10-Q. The unaudited consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to the audited consolidated financial statements included in the Company’s December 31, 2021 Annual Report on Form 10-K. 10 Table of Contents Out-of-period adjustment – During the first quarter of 2022, we recognized a $( 0.8 ) million ($( 0.6 ) million net of tax) reduction of interest and fees on loans and loans receivable, net as an out-of-period adjustment. The adjustment was not considered material to the interim consolidated financial statements for the three months ended March 31, 2022, nine months ended September 30, 2022, or the financial statements of any previously filed interim or annual periods. Use of estimates – In preparing the consolidated financial statements in accordance with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the date of the consolidated balance sheets and certain revenues and expenses for the period. Actual results could differ, either positively or negatively, from those estimates. Stock Repurchase Program – On August 18, 2022, the Company announced that its Board of Directors (the “Board”) has authorized, effective August 16, 2022, a common stock repurchase program to purchase up to 644,241 shares of the Company’s common stock in the aggregate. The repurchase program expires on August 31, 2024, but may be limited or terminated at any time without prior notice. The repurchase program authorizes the repurchase by the Company of its common stock in open market transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or privately negotiated transactions. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The actual means and timing of any shares purchased under the program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The repurchase program does not obligate the Company to purchase any particular number of shares. The Company has repurchased 20,000 shares for approximately $ 0.2 million as of September 30, 2022 and retired them at cost. Recently adopted accounting pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The guidance was initially effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. However, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities , delaying the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , which provides entities an optional transition method to apply the guidance under ASC Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted this guidance on January 1, 2022, which resulted in an increase in assets and liabilities by $ 7.4 million on the Company’s consolidated financial statements. 11 Table of Contents Accounting pronouncements to be adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) . The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, available-for-sale debt securities and applies to certain off-balance sheet credit exposures. This ASU was initially effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. However, the FASB issued an ASU to delay adoption to January 1, 2023 for smaller reporting companies with less than $250 million in public float as defined by the SEC’s rules. The Company is a smaller reporting company. The Company plans to apply the amendment’s provisions as a cumulative-effect adjustment to retained earnings at the beginning of the first period the amendment is effective. The Company has formed a team that is working on an implementation plan to adopt the amendment. The implementation plan is expected to include developing policies, procedures, and internal controls over the model. The Company is also working with a software vendor to measure expected losses required by the amendment. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements and expects that the portfolio composition and economic conditions at the time of adoption will influence the accounting adjustment made at the time the amendment is adopted. In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. This ASU is effective on January 1, 2023, the same effective date as ASU 2016-13. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements. Enactment of the Inflation Reduction Act of 2022 On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA) which, among other changes, created a new corporate alternative minimum tax (AMT) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective date of these provisions is January 1, 2023. The Company is currently evaluating the effects that the enactment of the IRA will have on its consolidated financial statements. Note 2 – Investments Investment securities held-to-maturity, at cost The amortized cost, unrealized gains and losses, and estimated fair values of the Company’s held-to-maturity securities at September 30, 2022 and December 31, 2021, are summarized as follows: ​ September 30, 2022 ($ in thousands) Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Mortgage-backed securities $ 13,925 $ — $ ( 1,567 ) $ 12,358 ​ December 31, 2021 ($ in thousands) Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Mortgage-backed securities $ 11,423 $ 23 $ ( 114 ) $ 11,332 The Company had seventeen securities in an unrealized loss position at September 30, 2022 and nine securities in an unrealized loss position at December 31, 2021, as summarized in the following tables: ​ September 30, 2022 Less than 12 months 12 Months or More Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Mortgage-backed securities $ 12,358 $ ( 1,567 ) $ — $ — $ 12,358 $ ( 1,567 ) ​ December 31, 2021 Less than 12 months 12 Months or More Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Mortgage-backed securities $ 8,961 $ ( 114 ) $ — $ — $ 8,961 $ ( 114 ) 12 Table of Contents The amortized cost and estimated market value of debt securities at September 30, 2022 and December 31, 2021, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. September 30, 2022 December 31, 2021 ($ in thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Securities held-to-maturity Due in one year or less $ — $ — $ — $ — Due after one year through five years — — — — Due after five years through ten years 3,205 3,038 1,541 1,548 Due after ten years 10,720 9,320 9,882 9,784 ​Total Securities held-to-maturity $ 13,925 $ 12,358 $ 11,423 $ 11,332 At September 30, 2022, all held-to-maturity securities were pledged as collateral for a credit line held by the Bank. There were no sales or transfers of investment securities and no realized gains or losses on these securities during the nine months ended September 30, 2022 or 2021. FHLB stock The Bank is a member of the FHLB system. Members are required to own FHLB stock of at least the greater of 1 % of FHLB membership asset value or 2.7 % of outstanding FHLB advances. At September 30, 2022 and December 31, 2021, the Bank owned $ 0.4 million, respectively, of FHLB stock, which is carried at cost. The Company evaluated the carrying value of its FHLB stock investment at September 30, 2022 and determined that it was not impaired. This evaluation considered the long-term nature of the investment, the current financial and liquidity position of the FHLB, repurchase activity of excess stock by the FHLB at its carrying value, the return on the investment from recurring and special dividends, and the Company’s intent and ability to hold this investment for a period of time sufficient to recover our recorded investment. Note 3 – Loans and Allowance for Loan Losses Loans are summarized as follows according to major risk category as of September 30, 2022 and December 31, 2021: ​ September 30, December 31, ​ 2022 2021 ($ in thousands) SBA $ 127,455 $ 142,392 Commercial, non-real estate 12,970 3,428 Residential real estate 34,501 27,108 Strategic Program loans 70,290 85,850 Commercial real estate 6,149 2,436 Consumer 5,455 4,574 Total loans $ 256,820 $ 265,788 Loans held-for-sale ( 43,606 ) ( 60,748 ) Total loans held for investment $ 213,214 $ 205,040 Deferred loan costs (fees), net ( 761 ) 2,917 Allowance for loan losses ( 11,968 ) ( 9,855 ) Net loans $ 200,485 $ 198,102 13 Table of Contents Strategic Program Loans – In 2016, the Company began originating loans with various third-party loan origination platforms that use technology and other innovative systems to streamline the origination of unsecured consumer and secured or unsecured business loans to a wide array of borrowers within certain approved credit profiles. Loans issued by the Company through these programs generally follow and are limited to specific predetermined underwriting criteria. The Company earns monthly minimum program fees from these third parties. Based on the volume of loans originated by the Company related to each Strategic Program, an additional fee equal to a percentage of the loans generated under the Strategic Program may be collected. The program fee is included within non-interest income on the Consolidated Statements of Income. The Company generally retains the loans and/or receivables for a number of business days after origination before selling the loans and/or receivables to the Strategic Program platform or another investor. Interest income is recognized by the Company while holding the loans. These loans are classified as held-for-sale on the balance sheet. The Company may also hold a portion of the loans or receivable and sell the remainder directly to the Strategic Programs or other investors. The Company generally services the loans originated through the Strategic Programs in consideration of servicing fees equal to a percentage of the loans generated under the Strategic Programs. In turn, the Strategic Program service providers, subject to the Company’s approval and oversight, serve as sub-servicer and perform typical primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring. Each Strategic Program establishes a “reserve” deposit account with the Company. The agreements generally require that the deposit reserve account balance, along with any other collateral, does not fall below the dollar amount of the total loans held-for-sale outstanding currently held by the Company for the specific Strategic Program. Collateral may include deposits held at the Bank, at another institution where the Bank has control of the account or a combination of deposits and other vehicles such as letters of credit. If necessary, the Company has the right to withdraw amounts from these sources to fulfill loan purchaser obligations created under the program agreements. Total cash held in reserve by Strategic Programs at the Company at September 30, 2022 and December 31, 2021, was $ 23.6 million and $ 39.6 million, respectively. Strategic Program loans retained and held-for-sale as of September 30, 2022 and December 31, 2021, are summarized as follows: ​ September 30, December 31, ​ 2022 2021 ($ in thousands) Retained Strategic Program loans $ 26,684 $ 25,102 Strategic Program loans held-for-sale 43,606 60,748 Total Strategic Program loans $ 70,290 $ 85,850 Changes in the ALL are summarized as follows: Three Months Ended September 30, 2022 ($ in thousands) SBA Commercial, Non-Real Estate Residential Real Estate Strategic Program Loans Commercial Real Estate Consumer Total Beginning balance $ 3,384 $ 274 $ 415 $ 6,442 $ 22 $ 65 $ 10,602 Charge-offs ( 259 ) — — ( 3,070 ) — ( 4 ) ( 3,333 ) Recoveries 9 — — 233 — — 242 Provision for loan losses 675 190 38 3,542 7 5 4,457 Balance at end of period $ 3,809 $ 464 $ 453 $ 7,147 $ 29 $ 66 $ 11,968 Ending balance individually evaluated for impairment — — — — — — — Ending balance collectively evaluated for impairment $ 3,809 $ 464 $ 453 $ 7,147 $ 29 $ 66 $ 11,968 Loans receivable $ 127,455 $ 12,970 $ 34,501 $ 26,684 $ 6,149 $ 5,455 $ 213,214 Ending balance individually evaluated for impairment 95 — — — — 95 Ending balance collectively evaluated for impairment $ 127,360 $ 12,970 $ 34,501 $ 26,684 $ 6,149 $ 5,455 $ 213,119 Nine Months Ended September 30, 2022 ($ in thousands) SBA Commercial, Non-Real Estate Residential Real Estate Strategic Program Loans Commercial Real Estate Consumer Total Beginning balance $ 2,739 $ 132 $ 352 $ 6,549 $ 21 $ 62 $ 9,855 Charge-offs ( 392 ) — — ( 8,508 ) — ( 4 ) ( 8,904 ) Recoveries 57 2 — 641 — — 700 Provision for loan losses 1,405 330 101 8,465 8 8 10,317 Balance at end of period $ 3,809 $ 464 $ 453 $ 7,147 $ 29 $ 66 $ 11,968 Ending balance individually evaluated for impairment — — — — — — — Ending balance collectively evaluated for impairment $ 3,809 $ 464 $ 453 $ 7,147 $ 29 $ 66 $ 11,968 Loans receivable $ 127,455 $ 12,970 $ 34,501 $ 26,684 $ 6,149 $ 5,455 $ 213,214 Ending balance individually evaluated for impairment 95 — — — — 95 Ending balance collectively evaluated for impairment $ 127,360 $ 12,970 $ 34,501 $ 26,684 $ 6,149 $ 5,455 $ 213,119 14 Table of Contents Three Months Ended September 30, 2021 ($ in thousands) SBA Commercial, Non-Real Estate Residential Real Estate Strategic Program Loans Commercial Real Estate Consumer Total Beginning balance $ 977 $ 250 $ 855 $ 5,078 $ 19 $ 60 $ 7,239 Charge-offs ( 1 ) — — ( 1,105 ) — — ( 1,106 ) Recoveries 30 11 — 99 — — 140 Provision for loan losses 149 — — 3,218 — — 3,367 Balance at end of period $ 1,155 $ 261 $ 855 $ 7,290 $ 19 $ 60 $ 9,640 Ending balance individually evaluated for impairment — — — — — — — Ending balance collectively evaluated for impairment $ 1,155 $ 261 $ 855 $ 7,290 $ 19 $ 60 $ 9,640 Loans receivable $ 125,192 $ 3,955 $ 25,105 $ 25,174 $ 2,357 $ 4,729 $ 186,512 Ending balance individually evaluated for impairment 1,079 — — — — — 1,079 Ending balance collectively evaluated for impairment $ 124,113 $ 3,955 $ 25,105 $ 25,174 $ 2,357 $ 4,729 $ 185,433 Nine Months Ended September 30, 2021 ($ in thousands) SBA Commercial, Non-Real Estate Residential Real Estate Strategic Program Loans Commercial Real Estate Consumer Total Beginning balance $ 920 $ 232 $ 855 $ 4,111 $ 19 $ 62 $ 6,199 Charge-offs ( 55 ) ( 63 ) — ( 2,304 ) — ( 3 ) ( 2,425 ) Recoveries 41 92 — 196 — 1 330 Provision for loan losses 249 — — 5,287 — — 5,536 Balance at end of period $ 1,155 $ 261 $ 855 $ 7,290 $ 19 $ 60 $ 9,640 Ending balance individually evaluated for impairment — — — — — — — Ending balance collectively evaluated for impairment $ 1,155 $ 261 $ 855 $ 7,290 $ 19 $ 60 $ 9,640 Loans receivable $ 125,192 $ 3,955 $ 25,105 $ 25,174 $ 2,357 $ 4,729 $ 186,512 Ending balance individually evaluated for impairment 1,079 — — — — — 1,079 Ending balance collectively evaluated for impairment $ 124,113 $ 3,955 $ 25,105 $ 25,174 $ 2,357 $ 4,729 $ 185,433 The following tables summarize impaired loans as of September 30, 2022 and December 31, 2021: September 30, 2022 ​ Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized ($ in thousands) With no related allowance recorded SBA $ 95 $ 95 $ — $ 534 $ 27 Commercial, non-real estate — — — — — Residential real estate — — — — — Strategic Program loans — — — — — Commercial real estate — — — — — Consumer — — — — — Total $ 95 $ 95 $ — $ 534 $ 27 15 Table of Contents December 31, 2021 ​ Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized ($ in thousands) With no related allowance recorded SBA $ 972 $ 972 $ — $ 945 $ 47 Commercial, non-real estate — — — — — Residential real estate — — — 189 — Strategic Program loans — — — — — Commercial real estate — — — — — Consumer — — — — — Total $ 972 $ 972 $ — $ 1,134 $ 47 Nonaccrual and past due loans are summarized below as of September 30, 2022 and December 31, 2021: September 30, 2022 ($ in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due & Still Accruing Total Past Due Non- Accrual Total ​ SBA $ 127,455 $ — $ — $ — $ — $ — $ 127,455 Commercial, non-real estate 12,970 — — — — — 12,970 Residential real estate 34,178 323 — — 323 — 34,501 Strategic Program loans 67,940 1,281 815 254 2,350 — 70,290 Commercial real estate 6,149 — — — — — 6,149 Consumer 5,448 — 7 — 7 — 5,455 Total $ 254,140 $ 1,604 $ 822 $ 254 $ 2,680 $ — $ 256,820 December 31, 2021 ($ in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due & Still Accruing Total Past Due Non- Accrual Total SBA $ 141,488 $ 247 $ — $ — $ 247 $ 657 $ 142,392 Commercial, non-real estate 3,428 — — — — — 3,428 Residential real estate 27,108 — — — — — 27,108 Strategic Program loans 84,065 1,041 690 54 1,785 — 85,850 Commercial real estate 2,436 — — — — — 2,436 Consumer 4,554 20 — — 20 — 4,574 Total $ 263,079 $ 1,308 $ 690 $ 54 $ 2,052 $ 657 $ 265,788 16 Table of Contents The amount of interest income for the three and nine months ended September 30, 2022 and 2021, that was not recorded on nonaccrual loans was de minimis . In addition to past due and nonaccrual status criteria, the Company also evaluates loans using a loan grading system. Internal loan grades are based on current financial information, historical payment experience, and credit documentation, among other factors. Performance-based grades are summarized below: Pass (Loan Grades 1-4) – A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote. Special Mention (Loan Grade 5) – A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the Company is currently protected and loss is considered unlikely and not imminent. Classified Substandard (Loan Grade 6) – A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the Company may sustain some loss if deficiencies are not corrected. Classified Doubtful (Loan Grade 7) – A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable. Classified Loss (Loan Grade 8) – A loss loan has an existing weakness or weaknesses that render the loan uncollectible and of such little value that continuing to carry as an asset on the Bank’s book is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical nor desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future. The Company does not currently grade retained Strategic Program loans due to their small balances and homogenous nature. Credit quality for Strategic Program loans is highly correlated with delinquency levels. The Strategic Program loans are evaluated collectively for impairment. Outstanding loan balances categorized by these credit quality indicators are summarized as follows at September 30, 2022 and December 31, 2021: September 30, 2022 ($ in thousands) Pass Grade 1-4 Special Mention Grade 5 Classified/ Doubtful/Loss Grade 6-8 Total SBA $ 125,611 $ 1,749 $ 95 $ 127,455 Commercial, non-real estate 12,970 — — 12,970 Residential real estate 34,501 — — 34,501 Commercial real estate 6,149 — — 6,149 Consumer 5,455 — — 5,455 Not Risk Graded Strategic Program loans 70,290 Total $ 184,686 $ 1,749 $ 95 $ 256,820 17 Table of Contents December 31, 2021 ($ in thousands) Pass Grade 1-4 Special Mention Grade 5 Classified/ Doubtful/Loss Grade 6-8 Total SBA $ 139,985 $ 1,435 $ 972 $ 142,392 Commercial, non-real estate 3,382 46 — 3,428 Residential real estate 27,108 — — 27,108 Commercial real estate 2,436 — — 2,436 Consumer 4,574 — — 4,574 Not Risk Graded Strategic Program loans 85,850 Total $ 177,485 $ 1,481 $ 972 $ 265,788 Loans modified and recorded as TDR’s at September 30, 2022 and December 31, 2021, consist of the following: ($ in thousands) Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment September 30, 2022 SBA 1 $ 95 $ 95 Total at September 30, 2022 1 $ 95 $ 95 December 31, 2021 SBA 2 $ 106 $ 106 Total at December 31, 2021 2 $ 106 $ 106 Non-Accrual SBA 1 $ 25 $ 25 At September 30, 2022 and December 31, 2021, there were no commitments to lend additional funds to debtors whose loan terms have been modified in a TDR. Loans modified and recorded as TDR’s included modifications to rate and term. There was one principal charge-off recorded related to TDRs during the nine months ended September 30, 2022 for $ 0.01 million. There were no principal charge-offs recorded related to TDRs during the nine months ended September 30, 2021. There was no principal charge-off recorded related to TDRs during the three months ended September 30, 2022. There were no principal charge-offs recorded related to TDRs during the three months ended September 30, 2021. 18 Table of Contents During the three and nine months ended September 30, 2022 and 2021, there were no loan modifications to TDRs. Separately, one restructured loan incurred a default within 12 months of the restructure date during the nine months ended September 30, 2022. This same loan was paid in full with interest on June 2, 2022. One restructured loan incurred a default within 12 months of the restructure date during the nine months ended September 30, 2021. This same loan was paid in full with interest on May 28, 2021. Note 4 – Premises and Equipment Premises and equipment at September 30, 2022 and December 31, 2021, consist of the following: September 30, December 31, ​ 2022 2021 ($ in thousands) Leasehold improvements $ 36 $ 80 Furniture, fixtures, and equipment 3,756 2,219 Construction in progress 4,808 2,333 Total premises and equipment $ 8,600 $ 4,632 Less accumulated depreciation ( 1,770 ) ( 1,347 ) Premises and equipment, net $ 6,830 $ 3,285 Depreciation expense was approximately $ 0.5 million and $ 0.2 million for the nine months ended September 30, 2022 and 2021, respectively. Lease Liabilities The Company leases its facilities under noncancelable operating leases. Rent expense for nine months ended September 30, 2022 and 2021 was $ 0.8 million and $ 0.4 million, respectively. Future minimum annual undiscounted rental payments for these operating leases are as follows ($ in thousands): Three Months Ended December 31, 2022 $ 263 Year Ended December 31, 2023 850 Year Ended December 31, 2024 1,104 Year Ended December 31, 2025 1,086 Year Ended December 31, 2026 1,118 Thereafter 3,355 Total 7,776 Less present value discount ( 527 ) Operating lease liabilities $ 7,249 The Company entered into one lease during the nine months ended September 30, 2022 to provide additional space while the Murray office construction is completed. ASC 842 does not apply due to the short-term period of this lease and immateriality. The tables below present information regarding the Company’s lease assets and liabilities. Comparative periods and disclosures are not presented here due to adoption of ASC 842 on January 1, 2022. ​ Nine Months Ended ​ September 30, 2022 Weighted-average remaining lease term – operating leases (in years) 7.0 Weighted-average discount rate – operating leases 1.9 % Supplemental cash flow information related to leases were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, ​ 2022 2022 ($ in thousands) Operating cash flows from operating leases $ 178 $ 234 Right-of-use assets obtained in exchange for operating lease liabilities — 7,380 19 Table of Contents The components of lease expense were as follows (in thousands): ​ Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 (in thousands) Operating leases Operating lease cost $ 278 $ 791 Variable lease cost 4 12 Operating lease expense 282 803 Short-term lease rent expense 9 38 Net rent expense $ 291 $ 841 Note 5 – Deposits Major classes of deposits at September 30, 2022 and December 31, 2021, are as follows: ​ September 30, December 31, ​ 2022 2021 ($ in thousands) Demand $ 152,806 $ 115,947 Savings 7,252 6,685 Money markets 12,281 31,076 Time certificates of deposit 60,499 98,184 Total deposits $ 232,838 $ 251,892 At September 30, 2022, the scheduled maturities of time deposits are as follows ($ in thousands): Year Ended December 31, 2022 $ 6,448 Year Ended December 31, 2023 18,749 Year Ended December 31, 2024 15,490 Year Ended December 31, 2025 10,047 Year Ended December 31, 2026 8,341 Thereafter 1,424 Total 60,499 Time deposits with balances equal or greater than $ 250,000 totaled $ 4.8 million and $ 3.7 million at September 30, 2022 and December 31, 2021, respectively. Note 6 – SBA Servicing Asset The Company periodically sells portions of SBA loans and retains rights to service the loans. Loans serviced for others are not included in the accompanying balance sheet. The unpaid principal balances of SBA loans serviced for others was $ 295.8 million and $ 210.2 million at September 30, 2022 and December 31, 2021, respectively. The following table summarizes SBA servicing asset activity for the periods indicated: ​ For the Three Months Ended September 30, For the Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Beginning balance $ 4,586 $ 3,725 $ 3,938 $ 2,415 Additions to servicing asset 921 714 3,164 2,474 Recovery (Impairment) of SBA servicing asset 127 — ( 949 ) — Amortization of servicing asset ( 365 ) ( 71 ) ( 884 ) ( 521 ) Ending balance $ 5,269 $ 4,368 $ 5,269 $ 4,368 The fair market value of the SBA servicing asset as of September 30, 2022 and December 31, 2021, was $ 5.3 million and $ 3.9 million, respectively. Recovery or impairment adjustments to servicing rights are mainly due to market-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates. A significant change in prepayments of the loans in the servicing portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of servicing rights. 20 Table of Contents The Company assumed a weighted average prepayment rate of 14.46 %, weighted average term of 4.32 years, and a weighted average discount rate of 14.07 % at September 30, 2022. The Company assumed a weighted average prepayment rate of 14.37 %, weighted average term of 4.02 years, and a weighted average discount rate of 11.38 % at December 31, 2021. Note 7 – Capital Requirements The Bank is subject to various regulatory capital requirements administered by federal and State of Utah banking agencies (the regulators). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off -balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk -weighting, and other factors. Prompt corrective action provisions are not applicable to the bank holding company. Beginning January 1, 2020, the bank qualified and elected to use the community bank leverage ratio (CBLR) framework for quantitative measures which requires the Bank to maintain minimum amounts and ratios of Tier 1 capital to average total consolidated assets. Management believes, as of September 30, 2022 and December 31, 2021, that the Bank meets all capital adequacy requirements to which it is subject. As of September 30, 2022 and December 31, 2021, the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank’s category). The following table sets forth the actual capital amounts and ratios for the Bank and the minimum ratio and amount of capital required to be categorized as well-capitalized and adequately capitalized as of the dates indicated. The Bank’s actual capital amounts and ratios are presented in the following table: ​ Actual Well-Capitalized Requirement ($ in thousands) Amount Ratio Amount Ratio September 30, 2022 Leverage ratio (CBLR election) $ 85,744 24.9 % $ 31,049 * 9.0 % December 31, 2021 Leverage ratio (CBLR election) $ 65,503 17.7 % $ 31,442 * 8.5 % * On March 27, 2020 the CARES Act became law. Section 4012 of the CARES Act directs the agencies to issue an interim final rule reducing the CBLR ratio requirement from 9% to 8% for the last two quarters of the year 2020, 8.5% for the calendar year 2021, and 9% thereafter. Federal Reserve Board Regulations require maintenance of certain minimum reserve balances based on certain average deposits. The Bank had no reserve requirements as of September 30, 2022 and December 31, 2021. The Federal Reserve’s policy statement and supervisory guidance on the payment of cash dividends by a Bank Holding Company (“BHC”), such as FinWise Bancorp, expresses the view that a BHC should generally pay cash dividends on common stock only to the extent that (1) the BHC’s net income available over the past year is sufficient to cover the cash dividend, (2) the rate of earnings retention is consistent with the organization’s expected future needs and financial condition, and (3) the minimum regulatory capital adequacy ratios are met. Should an insured depository institution controlled by a bank holding company be “significantly undercapitalized” under the applicable federal bank capital ratios, or if the bank subsidiary is “undercapitalized” and has failed to submit an acceptable capital restoration plan or has materially failed to implement such a plan, federal banking regulators (in the case of the Bank, the FDIC) may choose to require prior Federal Reserve approval for any capital distribution by the BHC. 21 Table of Contents In addition, since FinWise Bancorp is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, an ability to pay dividends depends on the ability of the Bank to pay dividends to FinWise Bancorp and the FDIC and the Utah Department of Financial Institutions (“UDFI”) may, under certain circumstances, prohibit the payment of dividends to FinWise Bancorp from the Bank. Utah corporate law also requires that dividends can only be paid out of funds legally available. The Company has not paid any cash dividends on its common stock since inception and it currently has no plans to pay cash dividends in the foreseeable future. However, the Company’s Board of Directors may declare a cash or stock dividend out of retained earnings provided the regulatory minimum capital ratios are met. The Company plans to maintain capital ratios that meet the well-capitalized standards per the regulations and, therefore, would limit dividends to amounts that are appropriate to maintain those well-capitalized regulatory capital ratios. Note 8 – Commitments and Contingent Liabilities Federal Home Loan Bank Secured Line of Credit As of September 30, 2022 and December 31, 2021, the Bank’s available line of credit with the FHLB to borrow in overnight funds was $ 3.2 million and $ 4.1 million, respectively. All borrowings are short-term and the interest rate is equal to the correspondent bank’s daily federal funds purchase rate. As of September 30, 2022 and December 31, 2021, no amounts were outstanding under the line of credit. Loans totaling $ 4.9 million and $ 5.4 million were pledged to secure the FHLB line of credit as of September 30, 2022 and December 31, 2021, respectively. Line of Credit At September 30, 2022 and December 31, 2021, we had the ability to access $ 10.1 million and $ 10.9 million from the Federal Reserve Bank’s Discount Window on a collateralized basis. Through Zions Bank, the Bank had an available unsecured line available of $ 1.0 million at September 30, 2022 and December 31, 2021. The Bank had an available line of credit with Bankers’ Bank of the West to borrow up to $ 1.05 million in overnight funds at September 30, 2022 and December 31, 2021. We had no outstanding balances on such unsecured or secured lines of credit as of September 30, 2022 and December 31, 2021. Paycheck Protection Program Liquidity Facility On April 20, 2020, the Bank was approved by the Federal Reserve to access its SBA Paycheck Protection Program Liquidity Facility (“PPPLF”) through the discount window. The PPPLF enables the Company to fund PPP loans without taking on additional liquidity or funding risks because the Company is able to pledge PPP loans as collateral to secure extensions of credit under the PPPLF on a non-recourse basis. Borrowings under the PPPLF have a fixed-rate of 0.35 %, with a term that matches the underlying loans. The Bank pledged $ 0.3 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at September 30, 2022. The Bank pledged $ 1.0 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at December 31, 2021. The average outstanding borrowings were $ 0.6 million during the nine months ended September 30, 2022 and $ 48.1 million during the nine months ended September 30, 2021. Commitments to Extend Credit In the ordinary course of business, the Bank has entered into commitments to extend credit to customers which have not yet been exercised. These financial instruments include commitments to extend credit in the form of loans. Those instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. At September 30, 2022 and December 31, 2021, financial instruments with off-balance-sheet risk were as follows: ​ September 30, December 31, ($ in thousands) 2022 2021 Revolving, open-end lines of credit $ 1,747 $ 1,259 Commercial real estate 19,563 15,402 Other unused commitments 397 377 ​ $ 21,707 $ 17,038 Note 9 – Investment in Business Funding Group, LLC On December 31, 2019, the Company purchased from certain members of BFG a 10 % membership interest in exchange for an aggregate of 950,784 shares of par value $ 0.001 Common Stock of the Company. The exchange was accounted for at fair value based on the fair value of the Company’s shares of approximately $ 3.5 million. 22 Table of Contents The Company’s 10 % membership interests of BFG are comprised of Class A Voting Units representing 4.96 % of the aggregate membership interests of BFG and Class B Non-Voting Units representing 5.04 % of the aggregate membership interests of BFG. The other existing members of BFG jointly own the remaining 90 % of the outstanding membership interests, on a fully-diluted basis – all of which membership interests are Class A Voting Units. Based on the Company’s accounting policy with respect to investments in limited liability companies, the Company concluded that its level of ownership was indicative of significant influence and, as a result, the investment would be accounted for using the equity method. However, the Company elected the fair value option for its investment due to cost-benefit considerations. The Company received distributions from BFG in the amounts of $ 0.5 million and $ 0.7 million for the nine months ended September 30, 2022 and 2021, respectively. These distributions were recorded in the Consolidated Balance Sheets as decreases in the investment in BFG. On March 31, 2020, the Company entered into an agreement with BFG whereby the Company has the right of first refusal to purchase additional interests in BFG from any selling members. Additionally, the Company was granted an option to purchase all, but not less than all, of the interests in BFG from the remaining members for an earnings multiple between 10 times and 15 times net profit based on the fiscal year ended immediately prior to the exercise of the option. The option period begins on January 1, 2021 and expires on January 1, 2028. In consideration of granting the first right of refusal and the option, BFG members received 270,000 warrants in the aggregate. The warrants have an exercise price of $ 6.67 per share and the warrants expire on March 31, 2028. The warrants are free-standing equity instruments and, as a result, are classified within equity at the fair value on the issuance date. The fair value of the warrants was determined by our board of directors with input from management, relying in part upon valuation reports prepared by a third-party valuation firm using a Black-Scholes option pricing model adjusted for a lack of marketability since the Company’s stock is not publicly traded. The resulting fair value of the warrants was $ 0.19 per share. For further discussion on the Company’s investment in BFG, see Note 13 Related Parties. Note 10 – Stock-Based Compensation Stock option plans The Company utilizes stock-based compensation plans, as well as discretionary grants, for employees, directors and consultants to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives and to promote the success of the Company’s business. The 2019 Stock Option Plan (“2019 Plan”) was adopted on June 20, 2019 following approval by the Company’s Board of Directors and shareholders. The 2019 Plan provides for the issuance of non-statutory stock options and restricted stock to employees, directors and consultants. The 2019 Plan also provides for the issuance of incentive stock options only to employees. On April 19, 2022, the Company’s Board of Directors approved an amendment of the 2019 Plan to change its name from the All West Bancorporation 2019 Stock Option Plan to the FinWise Bancorp 2019 Stock Option Plan and to increase the number of shares of the Company’s common stock available for awards under the 2019 Plan by 500,000 shares to 1,280,000 shares, subject to shareholder approval. The Company’s shareholders approved the name change and increase in the number of shares at the Company’s 2022 Annual Meeting of Shareholders on June 9, 2022. The 2019 Plan will terminate as to future awards 10 years from the later of the effective date or the earlier of the most recent Board or stockholder approval of an increase in the number of shares reserved for issuance under the 2019 Plan. At September 30, 2022, 648,197 shares are available for future issuance. The 2016 Stock Option Plan (“2016 Plan”) was adopted on April 20, 2017 following approval by the Company’s Board of Directors and shareholders. The 2016 Plan provides for the issuance of non-statutory stock options and restricted stock to employees, directors and consultants. The 2016 Plan also provides for the issuance of incentive stock options only to employees. The 2016 Plan authorizes the issuance of 299,628 common shares. The 2016 Plan will terminate as to future awards 10 years from the later of the effective date or the earlier of the most recent Board or stockholder approval of an increase in the number of shares reserved for issuance under the 2016 Plan. At September 30, 2022, 894 shares under 2016 Plan are available for future issuance. The stock-based incentive awards for both the 2019 Plan and the 2016 Plan (collectively, the “Plans”) are granted at an exercise price not less than the fair market value of the shares on the date of grant, which is based on a Black-Scholes valuation model, in the case of options, or based on the fair value of the stock at the grant date, in the case of restricted stock. Vesting of the options vary by employee or director and can have a term no more than 10 years , with the options generally having vesting periods ranging from 1 to 5 years . No shares had been granted under the 2016 Plan prior to 2018. Under both Plans, if an award expires or becomes un-exercisable without having been exercised in full, or is surrendered pursuant to an exchange program, the unpurchased shares that were subject thereto shall become available for future grant or sale under the Plans. However, shares that have actually been issued under the Plans, upon exercise of an award, shall not be returned to the Plans and shall not become available for future distribution under the Plans, except that if unvested shares of restricted stock are repurchased by the Company at their original purchase price, such shares shall become available for future grant under the Plans. 23 Table of Contents Other stock-based compensation On June 9, 2022, the Board approved a restricted stock discretionary grant of 96,011 shares with an aggregate fair value of $ 1.3 million from the 2019 Plan to certain executives. Granted shares vest ratably over three years based on achievement of specific levels of the Company’s return on average assets (ROAA) and, subject to the terms and conditions of the grant agreements, will be fully vested on June 9, 2025. On December 24, 2019, the Board approved a restricted stock discretionary grant of 1,072,746 shares to certain employees. Pursuant to the awards agreement, 351,852 shares vested on the grant date and were repurchased by the Company on December 31, 2019 to pay for employee withholding taxes. Pursuant to the awards agreement, 73,770 shares subsequently vested and were repurchased by the Company on April 6, 2020 to pay for employee income taxes. Granted shares vest based on the accelerated attribution method on a schedule where all shares would be fully vested on December 1, 2023. On November 18, 2021, pursuant to the awards agreement, the 424,458 remaining unvested shares became vested because the Company’s registration statement was declared effective. Stock options The grant date fair value is determined using the Black-Scholes option valuation model. The assumptions for expected life reflected management’s judgment and include consideration of historical experience. Expected volatility is based on data from comparable public companies for the expected option term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Expected forfeitures are estimated based on the Company’s historical forfeiture experience. Management believes that the assumptions used in the option-pricing model are highly subjective and represent only one estimate of possible value, as there is no active market for the options granted. The table below summarizes the assumptions used: ​ For the Nine Months Ended September 30, 2022 2021 Risk-free interest rate 3.10 % 0.4 % – 0.7 % Expected term in years 5.5 – 6.5 5.0 – 7.5 Expected volatility 45.8 % – 46.7 % 45.7 % – 47.6 % Expected dividend yield — — The following summarizes stock option activity for the three months and nine months ended September 30, 2022: ​ Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at June 30, 2022 925,283 $ 5.29 8.0 $ 4,091,633 Options forfeited ( 3,859 ) 5.62 — 16,359 Outstanding at September 30, 2022 921,424 $ 5.29 7.7 $ 3,828,066 Options vested and exercisable at September 30, 2022 621,378 $ 4.54 7.5 $ 2,789,615 ​ Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at December 31, 2021 862,488 $ 4.41 8.2 $ 8,088,660 Options granted 89,415 13.04 9.9 — Options exercised ( 16,800 ) 2.37 — 248,312 Options forfeited ( 13,679 ) 4.20 — 124,874 Outstanding at September 30 , 2022 921,424 $ 5.29 7.7 $ 3,828,066 Options vested and exercisable at September 30 , 2022 621,378 $ 4.54 7.5 $ 2,789,615 The weighted average grant-date fair value of options per share granted during the nine months ended September 30, 2022 was $ 6.26 . The aggregate intrinsic value of options exercised during the nine months ended September 30, 2022 was $ 0.2 million. During the nine months ended September 30, 2022, the Company received de minimis proceeds from the exercise of stock options and recognized a de minimis tax benefit from the exercise of stock options. Upon exercise of the stock options, the Company will issue new authorized shares. The weighted average grant-date fair value of options per share granted during the nine months ended September 30, 2021 was $ 1.48 . The aggregate intrinsic value of options exercised during the nine months ended September 30, 2021 was $ 0.5 million. During the nine months ended September 30, 2021, the Company received $ 0.3 million in proceeds from the exercise of stock options and recognized a de minimis tax benefit from the exercise of stock options. 24 Table of Contents Stock-based compensation expense The following tables present pre-tax and after-tax stock-based compensation expense recognized: ​ For the Three Months Ended September 30, For the Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Pre-tax Stock options $ 116 $ 61 $ 209 $ 883 Restricted shares 192 169 238 602 Total $ 308 $ 230 $ 447 $ 1,485 After-tax Stock options $ 116 $ 44 $ 204 $ 757 Restricted shares 192 169 238 800 Total $ 308 $ 213 $ 442 $ 1,557 As of September 30, 2022, the Company had unrecognized stock-based compensation expense related to stock options and restricted stock of approximately $ 0.6 million and $ 1.0 million, respectively, which is expected to be recognized over the remaining weighted average recognition period of 1.9 years and 1.8 years. Note 11 – Fair Value of Financial Instruments The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the standard requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy. 25 Table of Contents Level 1 – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data. Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from nonbinding single dealer quotes not corroborated by observable market data. In developing Level 3 measurements, management incorporates whatever market data might be available and uses discounted cash flow models where appropriate. These calculations include projections of future cash flows, including appropriate default and loss assumptions, and market-based discount rates. The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period. The following methods were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents : The carrying amount of these items is a reasonable estimate of their fair value. Investment securities held-to-maturity : The estimated fair values of investment securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2. Investment in Federal Home Loan Bank stock : The fair value is based upon the redemption value of the stock, which equates to the carrying value. Strategic Program loans held-for-sale : The carrying amount of these items is a reasonable estimate of their fair value. Loans held for investment : The fair value is estimated by discounting the future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Some loan types’ fair value approximated carrying value because of their floating rate or expected maturity characteristics. SBA servicing asset : The fair value of servicing assets is based on, in part, third -party valuations that project estimated future cash inflows that include servicing fees and outflows that include market rates for costs of servicing. The present value of the future cash flows are calculated utilizing market-based discount rates. The market-based discount rates represent risk spreads based on secondary market transactions utilizing calculated prepayment curves. Due to the fact that observable loan transactions are used to determine the risk spreads, the Company considers the measurement to be Level 2. Investment in BFG : The Company purchased its ownership interest in BFG on December 31, 2019. The Company’s valuation technique utilized the average of the discounted cash flow method and the Guideline Public Company method. A 20 % lack of marketability discount was applied to the valuation as well as a 4.50 % discount to non-voting shares to arrive at fair value as of September 30, 2022 and December 31, 2021. The calculation of fair value utilized significant unobservable inputs, including projected cash flows, growth rates, and discount rates. The fair value of the investment in BFG was $ 4.5 million and $ 5.9 million as of September 30, 2022 and December 31, 2021, respectively. The following table summarizes investment in BFG activity for the periods indicated: ​ For the Nine Months Ended September 30, ($ in thousands) 2022 2021 Beginning balance $ 5,900 $ 3,770 Distributions from BFG ( 492 ) ( 656 ) Change in fair value of BFG ( 908 ) 2,127 Ending balance $ 4,500 $ 5,241 Deposits : The carrying amount of deposits with no stated maturity, such as savings and checking accounts, is a reasonable estimate of their fair value. The market value of certificates of deposit is based upon the discounted value of contractual cash flows. The discount rate is determined using the rates currently offered on comparable instruments. Accrued interest receivable and payable : The fair value of accrued interest receivable and payable approximates their carrying amount. 26 Table of Contents PPP Liquidity Facility : The fair value of PPPLF is estimated using a discounted cash flow based on the remaining contractual term and current borrowing rates for similar terms. ​ September 30, 2022 December 31, 2021 ($ in thousands) Level Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Financial assets: Cash and cash equivalents 1 $ 92,463 $ 92,463 $ 85,754 $ 85,754 Investment securities held-to-maturity 2 13,925 12,358 11,423 11,332 Investment in FHLB stock 2 449 449 378 378 Loans held for investment 3 200,485 220,055 198,102 197,412 Loans held-for-sale 2 43,606 43,601 60,748 60,743 Accrued interest receivable 2 1,672 1,672 1,548 1,548 SBA servicing asset 2 5,269 5,269 3,938 3,938 Investment in BFG 3 4,500 4,500 5,900 5,900 Financial liabilities: Total deposits 2 232,838 203,469 251,892 249,488 Accrued interest payable 2 30 30 48 48 PPP Liquidity Facility 2 345 345 1,050 1,050 Assets measured at fair value on a nonrecurring basis are summarized as follows: ($ in thousands) Fair Value Measurements Using Description of Financial Instrument Fair Value Level 1 Level 2 Level 3 September 30 , 2022 Nonrecurring assets Impaired loans $ 95 $ — $ — $ 95 December 31, 2021 Nonrecurring assets Impaired loans $ 972 $ — $ — $ 972 Impaired loans – The loan amount above represents loans impaired as of year-end that have been adjusted to fair value. When collateral dependent loans are identified as impaired, the impairment is measured using the current fair value of the collateral securing these loans, less selling costs. The fair value of real estate collateral is determined using collateral valuations or a discounted cash flow analysis using inputs such as discount rates, sale prices of similar assets, and term of expected disposition. Some appraised values are adjusted based on management’s review and analysis, which may include historical knowledge, changes in market conditions, estimated selling and other anticipated costs, and/or expertise and knowledge. The loss represents charge-offs or impairments on loans for adjustments made based on the fair value of the collateral. 27 Table of Contents Quantitative information for Level 3 fair value measurements – The range and weighted average of the significant unobservable inputs used to fair value Level 3 nonrecurring assets as of September 30, 2022 and as of December 31, 2021, along with the valuation techniques used, are shown in the following table: ($ in thousands) Fair Value Valuation Technique Unobservable Input Range (Weighted Average) September 30 , 2022 Impaired loans $ 95 Market comparable Adjustment to appraisal value 0.05 % ​ December 31, 2021 Impaired loans $ 972 Market comparable Adjustment to appraisal value 0.50 % The range and weighted average of the significant unobservable inputs used to fair value the investment in BFG Level 3 recurring asset as of September 30, 2022 and as of December 31, 2021 are shown in the following table: September 30, 2022 December 31, 2021 ($ in thousands) Range (Weighted Average) Range (Weighted Average) Discounted Cash Flows Revenue growth rate 14.6 % 16.6 % Expense growth rate 14.3 % 16.3 % Discount rate 30.0 % 25.0 % Guideline Public Company Multiples of enterprise value 3.0 x to 4.0 x 4.0 x to 6.0 x Note 12 – Income Taxes The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and tax basis of its assets and liabilities. Deferred tax assets increased $ 0.3 million during the nine months ended September 30, 2022 as a result of changes to temporary timing differences associated with accounting for bad debts. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on this analysis, management has determined that a valuation allowance for deferred tax assets was not required at September 30, 2022. For the nine months ended September 30, 2022 and 2021, income tax expense was $ 8.5 million and $ 7.3 million, respectively, resulting in an effective income tax rate of 31.3 % and 25.3 %, respectively. The effective tax rate differs from the statutory rate of 24.9 % during the nine months ended September 30, 2022 due primarily to nondeductible wages, state taxes and the tax effect of stock-based compensation. The effective tax rate differs from the statutory rate of 24.9 % during the nine months ended September 30, 2021 due primarily to the tax effect of stock-based compensation. The Company had no unrecognized tax benefits at September 30, 2022. 28 Table of Contents Out-of-period adjustment – During the third quarter of 2022, the Company identified an error in the calculation of the Company’s tax provision which understated income tax expense for previously reported financial statements. The error was related to an incorrect application of Section 162(m) of the Internal Revenue Code, which limits tax deductions relating to executive compensation of certain executives of publicly held companies. The Company recorded an out-of-period adjustment during the third quarter of 2022 to correct the previously understated income tax expense. The adjustment resulted in a decrease to after-tax income of $( 0.9 ) million for the 9 months ended September 30, 2022, and a decrease to after-tax income of $( 1.4 ) million for the 3 months ended September 30, 2022. The Company has concluded that these amounts would not have been material to its net income for the 12 months ended December 31, 2021, or to its expected net income for the 12 months ended December 31, 2022 . Note 13 – Related Parties In the ordinary course of business, the Company may grant loans to certain executive officers and directors and the companies with which they are associated. The Company had loans outstanding to related parties of $ 0.0 million as of September 30, 2022 and December 31, 2021. Total deposits from certain executive officers and directors and the companies with which they are associated were $ 1.0 million and $ 0.5 million as of September 30, 2022 and December 31, 2021, respectively. On October 21, 2022, Mr. Alan Weichselbaum, who was elected as a director of the Company on October 6, 2022, repaid in full the $ 0.1 million aggregate principal amount plus interest owed under a secured promissory note, dated as of June 1, 2022 (the “2022 Note”), between the Company and Mr. Weichselbaum in accordance with the terms of the 2022 Note. As such, the obligations of the parties under the 2022 Note and a related security agreement were discharged and the 2022 Note and the security agreement were terminated. BFG is a small business loan broker, primarily under the SBA’s 7(a) loan program. As noted in Note 9 Investments above, the Company has a 10 % ownership in the outstanding membership units of BFG. The Company underwrites loans sourced by BFG in its normal course of business. If approved and funded, the Company pays BFG a commission fee based on the amount funded. There is no guarantee or commitment made by the Company to BFG to approve or fund loans referred by BFG. The Company is able to use its sole discretion in deciding to approve and fund loans referred by BFG. 29 Table of Contents Note 14 – Earnings per Share The following table is a reconciliation of the components used to derive basic and diluted EPS for the three and nine months ended September 30, 2022 and 2021 ($ in thousands, except share and per share amounts): ​ For the Three Months Ended September 30, For the Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Numerator: Net income $ 3,654 $ 8,442 $ 18,570 $ 21,472 Amount allocated to participating common shareholders (1) ( 27 ) ( 463 ) ( 139 ) ( 1,312 ) Net income allocate to common shareholders $ 3,627 $ 7,979 $ 18,431 $ 20,160 Denominator: Weighted average shares outstanding, basic 12,784,298 8,255,953 12,727,555 8,177,575 Weighted average effect of dilutive securities: Stock options 450,038 466,217 542,740 318,926 Warrants 89,723 88,659 134,269 49,000 Weighted average shares outstanding, diluted 13,324,059 8,810,829 13,404,564 8,545,501 Earnings per share, basic $ 0.28 $ 0.97 $ 1.45 $ 2.47 Earnings per share, diluted $ 0.27 $ 0.91 $ 1.37 $ 2.36 (1) Represents earnings attributable to holders of unvested restricted stock issued outside of the 2016 Plan and 2019 Plan to the Company’s employees for the three or nine months ended September 30, 2021. There were 378,684 and 563,062 anti-dilutive options for the nine months ended September 30, 2022 and 2021, respectively, reported in the table above. There were 135,731 shares and 221,000 anti-dilutive warrants for the nine months ended September 30, 2022 and 2021, respectively, reported in the table above. Note 15 – Revenue Recognition The following is a summary of the Company’s revenue disaggregated by contracts with customers and revenue outside the scope of ASC 606: ​ For the Three Months Ended September 30, For the Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Interest income Interest income, not-in-scope Interest and fees on loans $ 12,481 $ 13,726 $ 38,501 $ 33,635 Interest on securities 52 7 135 19 Other interest income 290 16 423 36 Total interest income $ 12,823 $ 13,749 $ 39,059 $ 33,690 Non-interest income Non-interest income, in-scope Service charges on deposit accounts $ 8 $ 9 $ 23 $ 22 Strategic Program set up fees 49 28 146 47 Non-interest income, not in-scope Strategic Program fees 5,023 4,731 17,067 11,451 Gain on sale of loans 1,923 2,875 9,387 7,876 SBA loan servicing fees 327 337 1,056 800 Change in fair value on investment in BFG 65 266 ( 908 ) 2,127 Other miscellaneous income 64 6 98 13 Strategic Program service charges 64 223 767 379 Total non-interest income $ 7,523 $ 8,475 $ 27,636 $ 22,715 30 Table of Contents Note 16 – Subsequent Events Subsequent events are events or transactions that occur after the date of the most recent balance sheet but before the financial statements are available to be issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing of the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the date of the balance sheet and before the financial statements are available to be issued. The Company has evaluated subsequent events through November 14, 2022, which is the date the unaudited consolidated financial statements are available to be issued. 31 Table of Contents